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Cyprus: Mifid II passporting changes

The Cyprus Securities and Exchange Commission (CySEC) has issued a summary of the changes to passporting arrangements and conditions governing the provision of investment services and activities by third country firms. These changes will apply as from January 3 2018 under Law 87(I)/2017, which transposes the Markets in Financial Instruments Directive (Mifid) II into Cyprus law. The scope of Mifid II is wider than the existing regulatory regime and the Mifid II passporting arrangements will apply to a broader range of activities, services and financial instruments than before. CySEC advises all the investment firms it regulates to review their passports and authorisations to determine whether they require amendment under the scope of Law 87 (I)/2017 and, if so, to submit the requisite notifications using the forms provided on CySEC's website.

Cross-border services' passports

Investment firms are allowed at present to submit one combined service passport notification covering all European Economic Area (EEA) countries. This will no longer be possible under Mifid II. Instead, investment firms will be required to submit a separate notification for each country in which they intend to provide cross-border services. Investment firms wishing to include Cyprus-based tied agents in any of their service passports will have to confirm, for each tied agent, the activities and financial instruments that the agent will passport cross border. A separate notification will be required for each country in which the tied agents intend to provide cross-border services.

Cross-border arrangements in relation to multilateral trading facilities and organised trading facilities

Investment firms operating a multilateral trading facility (MTF) or an organised trading facility (OTF), a new service introduced by Mifid II, intending to provide access from other EEA countries will have to submit separate passport notifications in addition to their notifications for other activities. Individual notifications are required for every trading platform and for every country in which it is intended to provide arrangements to facilitate remote access to an MTF or OTF.

Establishment of a branch

Investment firms intending to establish a branch in another EEA country are required to submit an establishment notification. The process will remain substantially the same, but notifications will also have to include details of the organisational structure of the branch, showing functional, geographical and legal reporting lines, together with a profit and loss and cash flow projection for the first 36 months of operations.

Tied agents based in other EEA countries

Firms intending to use tied agents established in other EEA countries will have to submit two notifications: one to be granted a right of establishment passport to the country concerned and a further notification to be granted the right to appoint a tied agent established there. A complete tied agent notification will be required for each tied agent established in each country.

Mifid II requires all member states to register tied agents established in their territory. If an investment firm is already using a tied agent established in one of the member states that has not operated a tied agent regime (Bulgaria, Denmark, Finland, Iceland, Latvia and Lithuania), the investment firm is responsible for re-registering this tied agent with the competent authority in the host country.

Termination of activities of a branch or a tied agent based in another EEA country

Investment firms intending to terminate the operations of a branch or the use of a tied agent based in another EEA country will be required to notify CySEC. The investment firm will need to provide a schedule for the planned termination and information on the process of winding down the business operations, including details of how clients' interests will be protected and how complaints will be resolved.

Provision of investment services and activities by third country firms

Mifid II gives member states the option to require investment firms headquartered in a third country to establish a branch in their territory in order to provide investment services or perform investment activities, subject to satisfying specific conditions. Cyprus has exercised its discretion and article 40 of Law 87(I)/2017 allows third country firms to provide services in Cyprus by establishing a branch in Cyprus under the authorisation and supervision of CySEC. In order to do this, third country firms must satisfy prescribed conditions regarding the adequacy of authorisation and supervision in their home country, adequacy of financial and managerial resources, investor compensation and information exchange for tax purposes.

Dimitris Papoutsis

Elias Neocleous & Co LLC
Neocleous House
195 Makarios III Avenue
CY-3030 Limassol
P.O. Box 50613
CY-3608 Limassol
T: +357 25 110110
F: +357 25 110001

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